Fertilizer Sector Subsidy in India. Vijay Laxmi Pandey Suresh Babu

Transcription

1 Fertilizer Sector Subsidy in India Vijay Laxmi Pandey Suresh Babu

2 Indian Agriculture Net area sown : 141 Mha Cropping intensity : Smallholders - 67% holdings < 1ha Number of operational holding 138 million (89m- 1980/81) Area irrigated 45% NPK use 125 kg/ha ( ) Food grains production 253 MT ( ) Cropping system dominated by cereals Rice yield 2.37 t/ha; Wheat yield 3.14 t /ha Share in GDP 14% from 31.4% ( ) Share in employment 51%

3 Consumption of Chemical Fertilizers in India (lakh tonne) N P K Total(N+P+K) Per Hectare (kg) 50 0 Source: MoA, 2014

4 Fertilizer Use in India Price elasticity of fertilizer demand Three major fertilizers Urea, DAP, MoP Large inter state variation in the fertilizer use Urea accounts for 74% & DAP 19% of total fertilizer consumption 86% of Urea is produced Fertilizer subsidy - 0.5% of GDP ( ) Share of fertilizer subsidy in total agricultural subsidy - 59% Farmers share in total subsidy 62% Urea accounts for largest fertilizer subsidy (70%)

5 Fertilizer Use Efficiency Fertilizer (Kg/Ha) Total Food grain yield(10kg/ha) 50 0

6 Percentage Share of Imports in Total Fertilizer Consumption Source: Department of Fertilizers, Ministry of Chemicals & Fertilizers

7 Kg/Hectare State Wise Variation in Fertilizer Use Source: MoA, 2014

8 Fertilizer Policies 1973/74- Oil crisis-> in fertilizer prices Farm Gate Prices doubled 1977 Retention Price Scheme (RPS) To encourage investment in domestic fertilizer industry Increase in fertilizer subsidy fiscal burden 1991 Decontrol of P & K fertilizers Unbalanced use of fertilizers-npk Ratio 5.9:2.4:1 1991/92-9.5:3.2:1 Reduction in fertilizer use efficiency; Environmental problems; Difference in consumption across the crops and regions

9 Fertilizer Policies New Pricing Schemes to replace RPS & improve efficiency in production Nutrient Based Subsidy N,P & K for 17 fertilizers products, urea not included New Investment Policy New Urea Policy

10 Distortions in Fertilizer Sector

11 Fertilizer Use Unbalanced use of fertilizers High intervention by the government for urea pricing High leakages in urea subsidy Benefits from fertilizer subsidy not adequately targeted Inefficiency in urea production subsidies based on end use

12 NPK Consumption Ratio :2.4: :3.2: :2.9: :2.8: :2.6: :2.4: :2.3: :3.1: :3.2: :2.7:1

13 Urea Subsidy (Economic Survey, ) Inefficient urea producers (24% of subsidy) Diversion of subsidized urea to nonagricultural uses and across border (41% of the remaining) Remaining 24% of subsidy used by the large farmers Thus only 35% of the total urea subsidy reaches targeted beneficiaries (Small and marginal farmers)

14 Urea Subsidy Consignment specific subsidy to importers Canalized imports only 3 agencies are allowed 50% of the urea, under movement control Fertilizer Ministry directs producers and importers how much to import and where to sell Subsidy on urea for agriculture is 75% - large price wedge Diversion of urea for commercial purposes and across the border

15 Determinants of Fertilizer Use (Rs/ha) (Data source: NSSO ) Variable Coef. Std. Err. t-stat Dependent Var.: Log of use of fertilizer (Rs/ha) Proportion of irrigated land 0.551*** Use of Technical Assistance 0.048* Credit 0.150*** Procured seeds 0.054*** Land Size class ( Ref: Marginal <1ha) Small (1-2 ha) *** Semi Medium (2-4 ha) *** Medium + Large (>4 ha) *** Social Group (Ref: Scheduled Tribe + scheduled caste) Other Backward Classes 0.118*** Others 0.160*** Education of the Head(Ref: Not literate and primary) Middle, Secondary and Higher Secondary Above Higher Secondary Age of the Head Constant 7.187*** State Dummies yes

16 New Urea Policy Period to Objectives maximize production of urea promote energy efficiency in urea units- savings in energy reduce subsidy burden and carbon-footprint. Policy aims to ensure timely supply of urea to farmers at same Maximum Retail Price (MRP) with lesser financial burden on the exchequer reduce import dependency in the urea sector. Urea units would adopt best available technology. It is expected to result in additional production of around 20 lakh/mt annually. Urea producers to produce neem coated urea

17 Fertilizer Policy Challenges Implications for reducing fertilizer subsidy for productivity and profitability? How to reduce subsidy and increase fertilizer use efficiency? How to target smallholder farmers and specific crops? Balanced use of fertilizers? Expanding soil testing and making it accessible and affordable? Micronutrient policy issues?